Following on from our September 2017 initial thoughts on Google’s proposed auction-based “remedy”, our latest presentation explains why the proposed functional separation of Google Shopping is essentially meaningless within the context of a pay-for-placement auction.

We also explore the various options that will be open to Google if, or more accurately when, the Commission informs Google that its current “remedy” proposal is not compliant with the required equal-treatment standard.

Contrary to some reports, the Commission’s June 2017 Prohibition Decision in the Google Search case did not leave it to Google to propose a remedy. Instead, the Commission laid out a detailed set of requirements[1] for a remedy based on the principle of non-discriminatory, equal treatment for all services: Google’s own and those of its competitors. The particular implementation of this principle-based remedy was, however, left up to Google.

Towards the end of last month, Google presented the European Commission with an outline of how it is proposing to comply with the Commission’s stated remedy requirements. And we understand that, since then, Google has started to meet privately with various comparison shopping services throughout Europe (presumably under NDA) to brief them on its auction-based proposal.

That’s right. Auction-based. Like Google’s three previous remedy proposals under Commissioner Almunia—all of which were resoundingly rejected precisely because they were auction-based (see our deconstructions of Google’s first, second, and third commitment proposals to see why).

In our March 2017 Remedy Paper, we set out the various options available to Google for implementing a solution that would be both effective and compliant with the Commission’s stated requirements for an equal-treatment remedy. It is no coincidence that none of these options involved a paid auction. We will reserve final judgement until we have seen the details of Google’s proposal, but it is difficult to imagine how Google could devise an auction mechanism that would not inflict significant additional consumer harm, both by further restricting competition and by aiding and abetting Google in its long-term goal to substitute unprofitable, relevance-based natural search results with highly-profitable, pay-for-placement[2] advertisements. It is also difficult to imagine how Google could devise an auction that Google’s own comparison shopping service could meaningfully participate in (without full-blown structural separation), or that would not result in Google’s competitors being compelled to bid away the majority of their profits to Google. In other words, it is difficult to imagine how Google could devise an auction-based remedy that does not fall far short of the Commission’s stipulated requirements for an equal treatment remedy.

Unless Google is volunteering to break up its general- and specialised-search businesses, the inclusion of Google’s comparison shopping competitors into a new or existing pay-for-placement auction would simply create an additional anti-competitive barrier—one that would formalise the transformation of free, relevance-based traffic into paid, pay-for-placement traffic for all services but Google’s own. This would only serve to escalate the inability of these services to compete against Google’s services in the face of Google’s immensely powerful search manipulation practices, particularly as, in an anti-competitive double-whammy, the company these competitors would be forced to hand their profits to would also be Google.

It is also difficult to imagine how Google hopes to persuade its users to accept what would be such a clearly retrograde step in the evolution of Google’s search service. We suggest that the primary reason that users have so far tolerated Google’s incremental shifts away from relevance-based search results towards pay-for-placement advertisements is not because they like or approve of these changes, but because they have so far been largely unaware of them (see our December 2016 Paper[3] for some of the history, context, and consumer harm resulting from Google’s progressive blurring of the lines between relevance-based search results and pay-for-placement advertisements). Of course, the same is true of Google’s illegal search manipulation practices; in our experience, Google’s users are still largely unaware of these immensely harmful anti-competitive practices.

In the months following the Commission’s April 2015 Statement of Objections, Google began to develop a new line of argument—one based on the pretence that the Commission’s formal anti-trust charges are about ads rather than search results and on the false notion that these two things are interchangeable. It now appears that Google is doubling down on this strategy. Indeed, through Google’s own writings and those of its extensive network of influencers[4], Google has tried to create the false impression that an ad-based remedy is the only option—even going so far as to wrongly suggest that the Commission is specifically demanding such an ad-based remedy. For example, on 4 September 2017, Google’s outside counsel for the EC’s investigation, Maurits Dolmans, presented the Commission’s emphatically non-prescriptive, search-result-based remedy as though it was explicitly and exclusively about ads (emphasis added)[5]:

“[The Commission] say Google should treat its rivals the same way it treats its own ad business. They want…the rivals’ ads to show up in Google’s own product ads, and then the rival would get paid. In other words, some kind of non-discrimination rule.”

Below, we have made the adjustments that would be necessary to render Mr Dolmans’ statement an accurate representation of the Commission’s requirements[6] (changes highlighted in bold):

[The Commission] say Google should treat rival comparison shopping services the same way it treats its own comparison shopping service. They want…the rivals’ comparison shopping services to show up in Google’s search result pages in exactly the same way as Google’s own comparison shopping service, and subject to exactly the same processes and methods determining the positioning and display, including the same relevance standards, ranking algorithms, penalty mechanisms and their respective conditions, parameters and signals. In other words, some kind of non-discrimination rule.

In addition to the many manifest shortcomings of any ad/auction-based remedy, it is important to bear in mind that Google only introduced the pay-for-placement business model underpinning all of its ad-based assumptions and arguments in February 2013—at least 7 years after the introduction of Google’s anti-competitive practices, 3 years after the start of the EC’s investigation, and 11 months after the commencement of “settlement” negotiations with Commissioner Almunia.

An important part of Google’s remedy strategy seems to be to divert attention away from the obvious, straightforward, and infinitely more effective alternative. Rather than preserving Google’s illegal anti-competitive practices and devising a way of unnaturally “shoe-horning” competitors’ listings into them, the more obvious solution is to simply end them. Google could cease and desist its anti-competitive Universal Search and penalty practices[7] and instead entrust the selection and ranking of all appropriate specialised services to Google’s core crawling, indexing, and ranking algorithms (albeit while borrowing some of the visual and other enhancements currently reserved for Google’s own products)[8]. As we have explained previously[9], this option would be relatively straightforward to implement and monitor, and it would immediately act to reinstate the comprehensive, relevance-based search results on which Google forged its formidable reputation and market position (and which many of Google’s users still assume they are getting when they use Google).

The incentives behind Google’s apparent attempts to secure an ineffective and non-compliant auction-based remedy are clear: any remedy that restores Google’s search results to a level-playing field for commercially-oriented search terms would inevitably result in a significant short- to medium-term decline in Google’s revenues and growth. Comparison shopping is a lucrative business model, and competing on the merits is considerably more difficult than relying on anti-competitive search manipulation practices that quietly commandeer the lion’s share of traffic and revenues.

While we have yet to see details of Google’s proposal, it seems unlikely that Google could have devised an auction-based remedy that does not fall far short of the equal treatment standard stipulated by the Prohibition Decision. It is therefore unlikely that the Commission would consider any such auction-based remedy to be compliant.

We are concerned, however, that in sectors such as comparison shopping—where Google’s anti-competitive practices are so entrenched and extreme that Google’s competitors have now been running on fumes for several years—there might be an understandable temptation to seize on any proposal that seems to offer a rapid lifeline to survival, rather than holding out for a truly effective remedy. Presumably, the reason Google is privately briefing various comparison shopping services is because it badly needs a number of them to sign-up to the deal before Google’s end-of-September implementation deadline. Perhaps Google is hoping that, if enough services can be persuaded to participate, this will help to create the impression of a viable solution. As an added temptation for participants and a bonus for Google, if the number of initial participants is small enough, participating services might enjoy a brief period of artificially inflated profits, resulting from what would be an abnormally under-subscribed auction.

It is also possible that Google might seek to tempt the Commission into tacitly accepting an auction-based “compromise” of a remedy by volunteering to apply it more broadly—perhaps across all of the other verticals the Commission is still actively investigating, such as travel and local search. Of course, it would be easy for Google to make such an offer if it was confident that the remedy would be ineffective, or even, as in this case, a substantial source of additional revenue for Google.

From what we know so far about Google’s auction-based proposal, it is hardly surprising that Google has not yet applied for interim measures[10]. It would be difficult for Google to argue that a “remedy” likely to net it substantial additional revenue would cause it grave and irreparable harm.

[2] In a pay-for-placement model, merchants bid for placement and the amount a merchant is willing to pay is a determining factor in where its offers are placed. In such models, product listings are not sorted by price, but instead prioritise offers from merchants willing to pay Google the most money for a click.

[7] Note: not all penalties are anti-competitive. All search engines require sophisticated penalty algorithms that seek to demote low-quality spam sites that masquerade as highly relevant to popular keywords.

With the looming public debate around Google’s recently filed appeal in the Google Search (Comparison Shoppping) case and, more importantly, around its soon to be disclosed remedy proposals, an understanding of the basic facts of the case may never have been so important.

With this in mind, here are our thoughts on the most recent revelations about Google’s network of academic influencers and surrogates:

We accept that many of the academics and other professionals within Google’s extensive network of influencers sincerely believe that their pro-Google opinions are their own and are not influenced by their (or their institution’s) financial ties to Google. However, it is noteworthy how often these opinions are underpinned by an eerily consistent misrepresentation of the basic facts of the Google case that belies, at the very least, a failure to treat Google’s representations of the case with the healthy scepticism one would normally reserve for a defendant.

The criticisms of the EC’s Google Search verdict by Google-funded academics and think tanks have tended to rely on and mirror many of the same fundamental misrepresentations and omissions that Google’s own criticisms of the verdict rely on. For example:

- They tend to focus exclusively on Google’s anti-competitive promotion of its own services (through Universal Search), while ignoring Google’s anti-competitive demotions and exclusions of competing services (through anti-competitive penalties). This is an important omission because any defence of one practice inevitably undermines the defence of the other.

- They neglect to point out that pay-for-placement advertisements are not a substitute for the relevance-based search results they are anti-competitively replacing. This is not a minor omission: paid advertisements are not what users visit Google for, and, when they are used to promote the merchants willing to pay Google the most money for a click rather than those offering users the lowest prices, the resultant user harm is obvious.

- They ignore the inconvenient yet immutable fact that Google only introduced these pay-for-placement advertisements (which underpin all of Google’s misleading ad-based arguments) in February 2013—at least 7 years after the introduction of Google’s anti-competitive practices, 3 years after the start of the EC’s investigation, and 11 months after the commencement of “settlement” negotiations with Commissioner Almunia. (See our December 2016 Paper for some of the history, context, and consumer harm resulting from Google’s progressive blurring of the lines between search results and pay-for-placement ads).

The perception-shaping power of Google’s sophisticated and disciplined PR machine is far-reaching. For example, many commentators now routinely refer to the EC’s Google Search case as the “Google Shopping” case. But, as Google well knows, the EC’s case isn’t about “shopping”, or even about “comparison shopping”. It is and always has been about Google’s anti-competitive manipulations of its core search results. What is true is that, for the time being at least, the Commission has chosen to constrain the scope of its formal charges and verdict to Google’s application of these illegal search-manipulation practices as they affect the comparison shopping market—i.e., where Google uses these practices to divert traffic and revenues to its own comparison shopping service (currently called Google Shopping) and away from competing comparison shopping services.

Statement by Shivaun Raff, CEO and Co-Founder of Foundem, the lead Complainant in the European Commission’s Google Search case:

We welcome today’s announcement that the European Commission has adopted a Prohibition Decision in the Google Search case.

Although the record-breaking €2.42 billion fine is likely to dominate the headlines, the prohibition of Google’s immensely harmful search manipulation practices is far more important. There can’t have been many Competition cases where the stakes for consumers, businesses, and innovation were any higher.

For well over a decade, Google’s search engine has played a decisive role in determining what most of us read, use and purchase online. Left unchecked, there are few limits to this gatekeeper power. Google can deploy its insidious search manipulation practices to commandeer the lion’s share of traffic and revenues in virtually any online sector of its choosing, quietly crushing competition, innovation, and consumer choice in the process.

Key Points

- The Google Search case is not about Google’s comparison shopping service; it is about Google’s core search results and the illegal practices Google uses to manipulate them.

- For the time being, the Commission has chosen to constrain the scope of its formal charges to Google’s application of these illegal practices as they affect the comparison shopping market—i.e., when Google uses these practices to divert traffic and revenues to its own comparison shopping service (currently called Google Shopping) and away from competing comparison shopping services.

- The Prohibition Decision upholds both halves of Foundem’s November 2009 competition complaint. That is, it concludes that Google has been illegally “favouring” its own services in two ways: first, through Universal Search (which artificially promotes Google’s own specialised services) and second, through anti-competitive penalties (which artificially demote or exclude competing specialised services).

- As has been the case throughout the Commission’s investigation, the Prohibition Decision is not limited to desktop search. It covers all of Google’s search results, regardless of whether they are accessed through a browser or an App, or from a desktop, laptop, tablet, or mobile phone.[1]

- The final remedy is likely to extend beyond comparison shopping to include travel search, local search, and other existing and future specialised services.[2]

Remedies

The Commission has made clear that it intends to pursue a remedy based on the Even-Handed, non-discrimination principle widely endorsed by Complainants and consumer groups. This principle states that Google’s search engine must hold all services, including Google’s own, to exactly the same standards—using exactly the same crawling, indexing, ranking, display, and penalty algorithms. One of the main advantages of a principle-based remedy is that it is resilient to future innovations and developments, as we highlighted in our November 2013 Analysis of Google’s Second Proposals:

“What the even-handed principle would look like in practice would be entirely up to Google. Google would be left free to pursue any and all developments that improve the quality of its search results or enrich or enhance their display. The only difference would be that, under a non-discrimination remedy, the search results afforded these enhancements would be based on their relevance to the users’ query rather than Google’s financial interests.”

As things currently stand, Google has a range of implementation options available to it, falling into two broad categories: one option preserves Universal Search, while finding a way to incorporate competing services alongside Google’s own. The other abandons Universal Search altogether and entrusts the selection and ranking of appropriate specialised services to Google’s core crawling and ranking algorithms (minus anti-competitive penalties). The second option is by far the more straightforward to implement, and could easily replicate all of the functionality and appearance of Universal Search, but in a way that is both pro-competitive and more desirable for users.

Given that the straightforward option relies on Google’s core algorithms (albeit minus the anti-competitive penalties) and on a meta tag schema that Google has already developed, it should be possible for Google to implement such a remedy in a matter of weeks.

The unpalatable truth at the centre of the Google Search case is that, if you are looking to buy something, Google has become increasingly particular about exactly how it wants to connect you to the merchants who sell it. Google increasingly wants to connect you to merchants through paid advertisements or via its own comparison shopping service—either of which generates revenue for Google. But, crucially, Google increasingly does not want to connect you to merchants through relevance-based natural search results or via a competing comparison shopping service—neither of which generates revenue for Google.

It is perhaps not surprising that Google has tended to gloss over this important point. Convincing users that it is in their best interests to forego relevance-based natural search results in favour of pay-for-placement advertisements and artificially promoted links to Google’s own services is a tough sell.

Google introduced its search manipulation practices gradually over time, in a series of virtually imperceptible individual steps (see section 2 of our Response to Google’s November 2016 Statement). As a result, there is now a growing chasm between the enduring public perception of Google’s search engine as comprehensive and unbiased and the reality that, for commercial search terms at least, it is increasingly neither. As Google co-founders Larry Page and Sergey Brin pointed out in 1998, “since it is very difficult even for experts to evaluate search engines, search engine bias is particularly insidious.”

It is also worth noting that, in the two-sided market in which Google operates, Google’s well-worn line about competition being “only a click away” does nothing to mitigate its special responsibilities as an overwhelmingly dominant search engine, but it does underline the unusual extent to which Google’s dominant market position depends on maintaining a trustworthy, even benevolent, public image (see section 7 of our Response to Google’s November 2016 Statement).

Many of Google’s recent public statements have been based on the false premise that the Commission’s antitrust charges are about ads rather than search results and on the false notion that these two things are interchangeable. While ads and search results might look similar, the underlying financial implications for Google, consumers, and businesses are very different.

Given how much of Google’s recent public pushback has hinged on the pay-for-placement model Google now employs within its Universal Search inserts, it is noteworthy that Google only introduced this fundamental change more than two years into the Commission’s formal investigation.[3] And, prior to introducing pay-for-placement, Google had spent more than a decade railing against the many obvious shortcomings of this model for users (see section 5 of our Response to Google’s November 2016 Statement).

Before Google began anti-competitively demoting rival comparison shopping services, these services were an increasingly popular way of shopping online (see sections 4.8 to 4.13 of our Response to Google’s November 2016 Statement). And it’s easy to see why: with just one click on a Google natural search result, users would be taken to their selected comparison shopping service and presented with a comprehensive survey of prices and availability for their chosen product from all or most of the leading online retailers (usually including Amazon and its various Marketplace Merchants). And, with just one more click, users would be delivered directly to the appropriate page on the website of their chosen merchant, from where they could then complete a purchase. In other words, prior to the introduction of Google’s anti-competitive search manipulation practices, consumers were rarely more than two clicks away from buying their chosen product based on a comprehensive survey of the market. By contrast, following the introduction of Google’s anti-competitive practices, consumers are now either several clicks away from a cursory survey of the market (which they must conduct manually themselves) or just one click away from probably paying more than they need to via one of Google’s prominently positioned, pay-for-placement, Google-Shopping-derived advertisements (see section 3 of our Response to Google’s November 2016 Statement).

The crucial role search engines play in directing users to websites means that most Internet-based businesses rely on search engines for a substantial proportion of their traffic and revenues. Google’s overwhelming dominance of horizontal search means that, for most websites, this amounts to an uncomfortable but unavoidable reliance on Google. And, of course, Google’s own specialised services are no less dependent on this Google search traffic than anyone else’s. Moreover, given that Google’s users visit Google for its natural search results and not for its paid advertisements, there is and always has been a symbiotic relationship between the websites that depend on Google for free natural search traffic and the tens of billions of dollars of Google’s annual advertising revenues that depend on these websites—because, without them, Google would have no natural search results to hang its ads on.

Google’s repeated protestations about the flourishing fortunes of Amazon and eBay remain the red herrings they have always been. Put simply, Google does not (yet) have an online retail, auction, or merchant-platform service that competes with Amazon or eBay. Therefore, Google does not (yet) have any incentive to anti-competitively penalise Amazon or eBay in its natural search results, and it does not (yet) have any directly competing service of its own to anti-competitively insert at the top of all potentially relevant search results. For an analysis and rebuttal of Google’s “Search for Harm” and Amazon-based “shopping” arguments, see our interactive reply to Google’s public response to the SO and section 4 of our reply to Google’s public response to the SSO.

The Length of the Investigation

We are often asked whether we would have submitted our European Competition Complaint if we had known how long the process would take or the herculean effort that would be needed to rebut Google’s seemingly endless obfuscatory arguments. In the end, getting to this point required numerous formal submissions, White Papers, panel discussions, Op-Eds, and open letters, as well as countless meetings with regulators, politicians, and journalists across four continents.

The definitive answer to this question might have to wait until the conclusion of our related civil claim in the UK High Court, but we have always known that the process we began and have devoted so much of the last several years to is immensely important. If effective remedies can be devised and enforced, which we believe they can, then it is no stretch to say that the outcome of this case could safeguard the future of competition, innovation, and consumer choice on the Internet.

About Foundem

Foundem is a UK-based vertical search company and the lead Complainant in the European Commission’s Google Search case.

It was Foundem’s November 2009 Competition Complaint[4] that triggered the Commission’s Google Search investigation, and, since then, we have continued to spearhead the global effort to shed light on Google’s anti-competitive search practices and reveal the truth behind the misleading arguments Google has used to defend them.[5]

Although Foundem was the first to raise these issues with the European Commission (and with the U.S. FTC), we have always known that our case was just the tip of a global iceberg. Indeed, over time, more and more companies have come forward, from Europe, the U.S., and elsewhere. Moreover, while there are now an unprecedented number of formal Complainants, there are many more companies that, through fear of retaliation, have only engaged with the Commission informally and/or in confidence.

Foundem provides a compelling example of the innovation-suppressing cost of Google’s anti-competitive search manipulation practices. Our case is not only about a legitimate business being anti-competitively denied access to a level playing field; it is also about an innovative, and potentially revolutionary, technology being denied the opportunity to fulfil its potential.

Our patented, programmable, vertical search technology allowed us to provide best-of-breed vertical search services to virtually any vertical with a fraction of the costs and resources of our competitors. By seamlessly ingesting feeds, crawling websites, and querying APIs and databases, Foundem could deliver unique results that were often more comprehensive and accurate than those of its competitors. Coupled with our innovative product-classification technology, this also allowed Foundem to deliver comparison shopping functionality to niche domains that lay beyond the reach of conventional services.

Google’s illegal search manipulation practices have caused substantial harm to Foundem’s business. And, in June 2012, we launched a civil claim for damages in the UK High Court. Under European Law, the conclusions of Prohibition Decisions are binding on national courts. Due to the substantial overlap between the Commission’s (then) anticipated Prohibition Decision and the Foundem Complaint, evidence, and arguments on which so much of it is based, our civil claim was stayed by mutual consent in December 2015. This stay will be lifted now that the Commission has adopted a Decision.

A Timeline of the Google Search Case

For further information about the background, context, and key turning points of the Google Search investigation, please see our Timeline of Significant Events.

[3] Google introduced a pay-for-placement model within its comparison shopping service and associated Universal Search inserts in the U.S. and Europe in October 2012 and February 2013, respectively. In a pay-for-placement model, the amount a merchant is willing to pay is a determining factor in where its offers are placed. This contrasts with the industry-standard pay-for-inclusion model, where merchants typically pay only to have their offers included in the service’s listings—their placement being determined solely by the user’s search and sort criteria (typically defaulting to cheapest offer first).

[5] For some examples, see our deconstructions of Google’s first, second, and third commitment proposals, our rebuttals of Google’s public responses to the Commission’s SO and SSO, and our proposal and advocacy of the non-discrimination remedy now being sought by the Commission.

Today we are publishing our Response to Google’s 3 November 2016 Blog Post. In it, we describe the unusual and often counterintuitive business model underpinning Google’s anti-competitive search manipulation practices, and we provide a point by point deconstruction of Google’s misleading arguments.

At first glance, Google’s latest blog post appears to be a straightforward rehash of Google’s previous public arguments in the European Commission’s Google Search case. But this appearance is deceptive. The reality is that Google knows it has already lost the battle over those arguments. Google’s blog post is actually a tentative segue into a new line of argument—based on the pretence that the Commission’s formal anti-trust charges are about advertisements rather than search results and on the false notion that these two things are interchangeable.

Today’s Supplementary Statement of Objections to Google, reinforcing the Commission’s preliminary conclusion that Google has abused its dominant position by systematically favouring its comparison shopping service in its search result pages, is another decisive step towards restoring the level playing field required for competition and innovation to thrive.

While we understand and respect the Commission’s thorough, step-by-step approach, Google’s unprecedented power and proven track record of exploiting every delay to further extend and entrench its immensely harmful anti-competitive practices creates a particularly strong imperative to act swiftly in this case.

While the Commission is clearly heading towards a robust Prohibition Decision, we are concerned that if it does not act conclusively in the near future there may be little competition left to protect.

Many have been puzzled by Microsoft’s recent agreement with Google to cease all legal and regulatory hostilities at a time when it seems that Google has more to gain from this unlikely entente than Microsoft. While details of the agreement have not been disclosed, it appears to prohibit either company from instigating, participating in, or even commenting on the legal or regulatory disputes of the other.

Microsoft’s 28 April Blog post[1] might provide a clue to Microsoft’s motivation. It reveals that a recent Windows 10 update closed the loopholes that had allowed its Cortana digital assistant to use non-Microsoft browsers and search engines. But doesn’t this bear an eerie resemblance to the anti-competitive practices at the core of both Microsoft’s and Google’s antitrust woes with European and US regulators?

Windows 10 represents a dramatic shift in Microsoft’s business model. It is Microsoft’s first multi-platform operating system, its first to be given away as a free upgrade, and its first to require users to allow Microsoft to push updates without further consent. Given that Microsoft expects Windows 10 to be installed on more than a billion active devices within the next two years[2], surely any move that ties its integrated Cortana assistant to its own search engine and browser risks inviting accusations of anti-competitive leveraging from Bing and Edge’s rivals? You know, rivals such as Google, and…well…Google.

So what has Google had to say about the recent Windows 10 update? When asked by the Wall Street Journal, “Google declined to comment”[3]. The penny drops?

Given that Microsoft’s withdrawal from the various investigations into Google’s anti-competitive conduct is unlikely to have any material impact on their outcome, particularly at this late stage, is it possible that Microsoft has more to gain from this pact than we, or even Google, first realised?